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ComputerWire: IT Industry Intelligence

The Securities and Exchange Commission took the almost unprecedented step of commenting on an informal investigation yesterday, after reports that it had begun a probe into IBM Corp's financial reporting rocked the US financial markets,

Joe Fay

writes.

The SEC said that it had opened an investigation into IBM but closed it shortly thereafter without taking any action. The statement followed reports yesterday that a research firm had found evidence that the SEC had opened an informal investigation into IBM.

Yesterday's SEC statement led to a rebound in IBM's share price in after hours trading, after it was driven down 5.4% to close at $84.19, in the wake of the earlier reports. IBM's shares had been hit earlier in the week when the company issued a shock Profit warning.

It was assumed that the claimed SEC investigation had been opened following controversy in February about the way that IBM reported gains on the sales of some assets, sparked by a story in the New York Times.

Initially both the SEC and IBM refused to comment yesterday. The SEC never comments on whether it is investigating a company until it takes action. IBM said it never commented on its relationships with government agencies.

In the meantime IBM's shares were pummeled, and the US markets as a whole took a beating, no doubt partly because of concern that a corporate icon in the US had attracted SEC attention.

But in a dramatic move late yesterday, the SEC issued a public statement saying it had opened an investigation into IBM, but had closed it shortly thereafter without taking any action.

An SEC spokesman refused to say when the probe had occurred, when it had closed, or what it had looked at. He also declined to comment on why the agency had broken its standard policy and commented on an informal investigation. However, the mayhem in the wake of the original reports no doubt partly prompted the SEC to make its move.

Reports of SEC investigations into technology companies have added an extra dose of paranoia to a still volatile US tech market, and indeed the stock market as a whole.

The spokesman for the Washington-based agency confirmed that the agency had opened 49 investigations into corporations' financial reporting in the first two months of this year, compared to 18 last year. Fortune 500 companies were more represented than ever before, he added.

A series of technology and telecoms companies have come under the SEC's microscope in recent months. However, the spokesman said there was no breakdown available which would show if technology companies were coming under particular scrutiny. He added that the agency has no policy to pay more attention to the technology sector than other industries.

Earlier this month a Wall Street Journal article said the SEC had questioned some of IBM's accounting practices.

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